National Beverage Corp. — Q3 FY2020 Form 10-Q
Reporting period: Fiscal third quarter and nine months ended January 25, 2020; comparisons are with the periods ended January 26, 2019. Unaudited consolidated results. The company develops, produces, markets and sells beverages, primarily in the U.S. and Canada, including LaCroix, juices, energy drinks and carbonated soft drinks.
Financial performance
| Metric | Three months | Nine months |
|---|---|---|
| Net sales | $222.8 million, up 0.9% | $738.0 million, down 4.7% |
| Gross profit / margin | $82.1 million / 36.8%, versus 36.5% | $271.5 million / 36.8%, versus 38.7% |
| Operating income | $33.2 million, versus $31.0 million | $119.4 million, versus $146.2 million |
| Net income | $26.6 million, versus $24.8 million | $93.8 million, versus $114.7 million |
| Diluted EPS | $0.57, versus $0.53 | $2.00, versus $2.44 |
Margins and sales drivers: In the quarter, case volume rose 2.4% while average selling price declined 1.5%; gross profit increased on volume growth and a 2.1% decline in cost of sales per case. For the nine months, case volume fell 4.1%, including a 7.8% decline in Power+ Brands partly offset by 4.4% growth in carbonated soft drinks. Cost of sales per case rose 2.5%, and SG&A as a share of sales increased to 20.6% from 19.8%.
Cash flow and liquidity: Nine-month operating cash flow was $125.2 million, versus $107.0 million. Capital expenditures were $15.8 million, versus $27.5 million; cash and equivalents increased $105.5 million to $261.7 million. Working capital was $297.8 million and the current ratio was 3.7:1. The company reported no borrowings on its $100 million revolving facilities, with $96.9 million available after letters of credit. Management said existing resources should meet liquidity and capital needs for the next 12 months.
Debt, leases and capital: No bank debt was outstanding; the company was in compliance with credit covenants. Adoption of the lease accounting standard resulted in recognition of lease assets and liabilities; at quarter-end operating lease liabilities totaled $47.5 million, including $13.8 million current. The company repurchased $4.3 million of common shares during the nine months. No common-stock cash dividend was reported in the current period; the comparable prior-year period included a $135.2 million dividend.
Material changes and management commentary
- Quarterly sales, gross profit and net income improved modestly year over year, but nine-month sales and earnings declined, with lower volume and higher manufacturing costs weighing on gross profit.
- Management expects fiscal 2020 capital expenditures to decline from fiscal 2019 levels while continuing production-capacity and efficiency projects.
- The company says results are affected by raw-material costs, seasonality, holidays and weather, and cautions that interim results may not indicate full-year performance. No specific full-year revenue or earnings guidance is provided.
- Key stated risks include competition and pricing, consumer preferences and brand image, success of new products and strategies, raw-material and packaging costs, retailer support, labor disruptions, regulation and unfavorable weather. The filing reports no material changes to previously disclosed risk factors or market risks.
- Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether the recent quarterly volume improvement persists, particularly given the nine-month decline in Power+ Brands and the lower average selling price.
- Whether cost pressures ease: nine-month gross margin fell to 36.8% from 38.7%, despite improvement in the latest quarter.
- How cash generation and the $261.7 million cash balance are allocated, including capital spending, share repurchases and any future distributions.
- The ongoing cash and earnings effects of leases and aluminum hedges; the filing says $1.3 million of unrealized hedge losses, before tax, was expected to be reclassified to earnings over the next 12 months, assuming no commodity-price change.
- Whether the company’s expectation of lower fiscal 2020 capital expenditures and its stated liquidity outlook remain valid.